How are Title Loans Different from Crowdfunding?
The only similarity between crowdfunding and title loan is that both are methods of gathering funds. Barring this similarity, these two are as different as chalk and cheese. Crowdfunding is not a loan at all, whereas title loan is like any other traditional loan product. Unless you have a clear understanding of how the lending processes work, you will not be able to decide which one would be suitable for your needs.
If you need some cash very quickly to meet some personal expenses, and would not like to approach friends and relatives or file loan application at the traditional lending institutions such as banks that take too much time for approving applications, then getting a title loan is the perfect answer. On the other hand, if you are an entrepreneur in need of a large sum for various business operations, but are wary of traditional methods of business funding, you are the right candidate for crowdfunding. To know what other differences are there, keep reading.
Title loans are for individuals
When you want to avail a title loan, you can apply for it without mentioning any reason for taking the loan. You get the loan against the value of the car that you own by pledging the title of the vehicle with the lender who places a lien on it. It is thus a secured loan, and the lender does not have to worry about payback, because should anything go wrong, they can recover the sum by using the lien on the car.
How much money you can get will solely depend on the value of the car. No matter how expensive your car is, the amount of the loan that you get will never be as high as the original price of the car since used cars depreciate very fast. New cars fetch higher amounts than older cars. However, the amount will never be so big that you can plan a project launch. If you are in need of a large sum of money, then title loan may not suffice.
Speedy disbursal
Title loans have a fast approval process, and you can even get the sum in just 24 hours. This makes it appear as good as ready cash. As long as you have the documents of the car in the correct order and the title clearly denotes you as its owner, you can get the loan without any worries. As it is a secured loan, lenders do not even look at your credit score. Even if you have poor credit score, there is no problem in getting the title loan. Apart from not requiring a credit check, salvage title loans can also be convenient if you are in a period of financial distress and need fast cash. Even if your car is damaged but you own a valid car title certificate and your car is approved after the inspection you will be eligible to receive your loan.
Short tenure
The maximum duration of a title loan is 24 months, but it can even be as less as 30 days. The structure of the loan indicates that it is best suited to bridge gaps in finances that can occur due to many reasons. It is a temporary measure that helps in restructuring your finances. This is also evident from the fact that the loan can be paid back early as it does not entail any extra charges for it. All these factors point to the fact that lenders expect you to pay back the loan at the earliest.
High interest
Only 27 states in the US allow title loans and the interest rates are quite high. Although interest rate depends on the period of the loan, on an average, it can be as high as 300% APR as prevalent in 18 states. In states like Arizona, the higher the loan amount is, the lower the interest rate will be.
Crowdfunding
Crowdfunding is a new concept of acquiring funds required for a project or start-up business. In this process, the public at large makes donations after going through the details of the project. If they find the project worthy enough, they pitch in by donating. It is a non-conventional way of arranging funds, and it takes a whole new route to reaching out to prospective investors. Investors can include even family members, friends, and colleagues besides professional investors. It is a collective effort of investors to pool in money for the project that they feel is worth investing in. There are numerous crowdfunding platforms where businesses and individuals can raise money to give shape to their dreams. The networking power of social media is also leveraged to reach out to a larger section of interested investors.
A different approach
The technique of crowdfunding is unique in that it is entirely different from the traditional methods of raising capital. Money is required to launch a new product or start a new business, and in the traditional system, you have to hop around from door to door in search of interested investors. Such investors mostly belong to the financial institutions and some professional private investors that include banks, venture capital firms, and angel investors. The pool of resources that you are able to access this way is quite limited. A lot depends on finding the right investor at the right time to succeed in meeting the target of raising capital, which can pose a significant challenge.
In crowdfunding, you can launch your campaign on any crowdfunding platform that provides the opportunity to showcase your business or project and build credibility among investors. It saves a lot of running around that you would have to do in the traditional method. Moreover, you can reach out to investors across the world, cutting across boundaries, which increases the prospects of garnering more funds with much ease. More often than not, we see that crowdfunding projects succeed at collecting more money than they had targeted.
Crowdfunding methods
There are three types of crowdfunding methods. Select the one that suits the products and services that your offer and helps to accomplish the business goals.
- Donation based crowd funding – This method is applicable for social projects and charities in which investors donate without expecting any returns from it.
- Rewards based crowd funding – Rewards comprising of products and services of the company await the investors who contribute to the fund.
- Equity-based crowdfunding –The investors who contribute by donating money get equity shares of the company that ensures a financial return on the investment.
Both crowdfunding and title loans have their pros and cons. Before thinking of either method, you need to identify your exact needs. Once you have figured out your requirements and goals, decision-making will be a piece of cake!
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